Media release: Banks up to their necks in fossil fuels, putting the climate and their balance sheets at risk

Melbourne, 26 February 2016

Australia’s major banks continue to play an integral role in financing the fossil fuel industry, despite commitments to support the goal of limiting global warming to less than two degrees.

Market Forces has analysed lending to the fossil fuel sector in Australia from 2008-2015 and found that Australia’s major banks have provided loans totalling almost $50 billion to coal, oil and gas over that time. Out of 150 banks identified in the study, Australia’s “big four” (ANZ, Commonwealth, NAB and Westpac) have provided 27% of total debt to the coil, oil and gas sectors, participating in 76% of all deals.

Last year it was business as usual for the big four, as they participated in 70% of all deals uncovered and loaned $5.5 billion to the fossil fuel sector. While the Japanese megabanks topped the list of 2015’s leading lenders due to a multi-billion dollar deal to refinance the Icthys LNG terminal in the Northern Territory, Australia’s major banks all loaned over $1 billion each to fossil fuels, Commonwealth Bank the most among them.

Many examples of deals captured by the study highlight the financial distress faced by the sector. Among the deals found in recent years are a number of refinancings, including a 2015 deal to Whitehaven Coal that was described as in distress shortly after being signed with at least one bank seeking to exit the deal, and corporate debt to fossil fuel majors Origin Energy and Santos, both of which are now trading at a discount on the secondary market.

Market Forces Executive Director, Julien Vincent said of the findings:

“Environmentally and financially, the situation is worse than we thought for the Australian banks. While major economies are moving away from coal and commercial banks starting to implement coal phase out policies, the Australian banks are dealing with a legacy of having bankrolled a massive fossil fuel export boom which is at odds with action to protect the climate, as well as the direction of fossil fuel markets.

“Australian banks’ credit has continued to support coal power stations that should have closed years ago to make way for renewable energy, and enabled a raft of new coal and gas projects that, from an environmental perspective, should never have gone ahead in the first place. Now the economic frailties of these deals are beginning to manifest, as coal mines and ports become stranded and fossil fuel majors face downgrades.

Climate inconsistency

In late 2015, all four of Australia’s major banks made public statements in support of the international goal to limit global warming to less than two degrees, which was reaffirmed at the Paris climate change negotiations last December.

However, the data found in the Market Forces study suggests that these commitments did not reflect changes in the banks’ appetite for fossil fuel lending.

“The banks need to understand that saying they support an economy that limits global warming to less than two degrees is not just a pretty announcement and some nice PR. They need to mean it and that means adapting their business – especially what they lend to and invest in – to rapidly drive down greenhouse gas emissions”, said Mr Vincent.

“If the banks are serious about their commitments on climate change, we should expect to see a rapid drop in the number of deals and amounts loaned to the fossil fuel sector from 2016 onwards.”

Market Forces is calling on Australia’s banks to commit to:

not finance any expansion of the fossil fuel industry

establish policies that mandate a reduction in exposure to fossil fuels in line with targets consistent with a carbon budget that limits global warming to well below two degrees

demonstrate progress towards reducing exposure to the fossil fuel sector year-on-year, consistent with a carbon budget that limits global warming to well below two degrees

Market Forces is calling on customers of the major banks to put their bank on notice, warning that if they continue to finance fossil fuels and contradict their climate commitments, the customers will move their business elsewhere. To date, customers worth almost $500 million in savings alone have taken action, thousands leaving their banks publicly.

Results of the study can be found at: www.marketforces.org.au/2015lending

More detail on the lending by the major Australian banks can be found at: https://www.marketforces.org.au/wp-content/uploads/2016/02/Big-four-bank-lending-to-fossil-fuels-in-Australia-2008-2015-1.pdf